Labels shining and industry thinking

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The Indian label industry is still small by world standards but it is growing faster than the world average growth of 5.5 per cent. Although the label industry in India is estimated to be less than half a percent of the world label production that is nearing 60 billion dollars, it is growing at a rate of more than 13 per cent if you take all its paper and synthetic flexible components together.

Our preliminary estimate compiled over the last few weeks (as a part of our industry survey that has been going on for over a year), is that the label industry including wet glue paper labels, pressure sensitive labels, thermal transfer labels, flexible wraparound labels and shrink sleeves grew from Rs. 1077 crore in financial year 2000-2001 to Rs. 1381 crore in FY 2003-04. Our estimate excludes cloth labels that are silk-screened on locally manufactured machines (possibly over Rs. 1000 crore) and tags (with no estimate at this point), which can be of very high value (even machine readable), with high volumes and precision for industries such as garments or tea bags.

Within the label segments that we have looked at, shrink sleeves and wraparound labels are growing fastest at over 17 per cent, while pressure sensitive and thermal transfer labels are growing at 15 per cent and wet glue label growth is about 10 per cent. Hence the widespread use of relatively lower value wet glue labels has declined in its relative market share from our estimate of 60 per cent in 2000-2001 to 55 per cent in 2003-04. This represents a significant growth for the higher value pressure sensitive labels because wet glue labels are printed on chromo paper by thousands of offset printers for applications as varied as matchboxes and bidis, and tin can and glass bottle labels. However, our estimate of 60 per cent share for wet glue labels in 2000-01 is much higher than previously published figures that put the figure at 45 per cent of all labels for that year.

In fact wet glue labels are also becoming more sophisticated and use the latest technology from brand new high technology imported multicolour presses to computer to plate for industries such as pharmaceuticals and tinned food that are exported.

Even pharmaceutical companies that predominantly use pressure sensitive labels for their own manufacture, sometimes use wet glue labels for manufacturing that is contracted out.

Although it is difficult to quantify the production and growth of wet glue labels, it can be done by tracking the output, use, and growth of label stocks including chromo paper, and continuous interviews with label and packaging printers who are ready to share authentic information and insights.

We plan to interview the biggest users themselves including the food processors, the beer, bidi, and match industry. We plan to also interview the manufacturers and distributors of label application equipment.

Our preliminary estimates are based on interviews with manufacturers of pressure sensitive substrates, adhesive suppliers, equipment suppliers, and packaging and label converters from the largest to fast growing medium sized companies, and to exclusively label printers in the South, West and the Northern region all of whom use narrow web rotary presses for pressure sensitive stock. We have also spoken with end-users from the pharmaceutical, personal care and FMCG companies who have indicated to us both what their companies buy in terms of packaging and labels and what they see as the growth rates in various segments.

Of course within an industry there is tremendous variation and it will take more work to ascertain user segment preferences and trends. For instance, the biggest share of the packaging budget of pharmaceutical companies (over 35 per cent) goes to rigid containers, both plastic and glass — with plastic rigid containers growing at 12 to 15 per cent and increasingly replacing glass vials and bottles. In pharmaceuticals where the tendency is to overwhelmingly use pressure sensitive labels (over 80 per cent), some companies spend as little as 5 per cent of their entire packaging budget on labels, while other companies are more label intensive in their packaging.

Pressure sensitive labels

The pressure sensitive label segment is the one that seems to arouse the greatest passion in the industry although flexible labels such as wraparound labels and shrink sleeves that can take the shape of the container are growing faster albeit with a smaller base. There are some apprehensions that there are not enough application machines for wraparound labels but leading converters tell us this is no longer a constraint and that these machines are available in the country. There are yet other apprehensions about shrink sleeves that some converters are not using the appropriate material in the required 40 micron thickness but there is also considerable excitement about this technology among personal care and FMCG packaging buyers and universal agreement that this is the fastest growing label technology.

There is also a move from rigid plastic and hence labels, to using flexibles by FMCG and even oil companies. However, unlike Thailand, in India consumers are not graduating to bigger size rigid packs and thus a whole range of slightly bigger flexible pouches and smaller rigid packs are being introduced, sometimes for introductory giveaway schemes.

To estimate the volumes of pressure sensitive labels we have found that there are almost a hundred (mostly imported new) narrow web rotary label presses in the country from manufacturers as varied as Mark Andy, Aquaflex, Gallus-Arsoma, KoPack, KDO, Focus, Edale, Rotatek, Iwasaki, Nilpeter and GiDue. The configuration and productivity of these machines varies but we estimate that these machines produce 60 per cent of the highest value pressure sensitive labels. The balance 40 per cent are produced on the 200 to 400 roll fed flatbed label presses using mainly imported stock lots or from pressure sensitive stock manufactured by the unorganised sector. Among these flatbed presses are several Iwasakis and Orthotecs imported brand-new, and numerous second hand Iwasaki, Orthotec, Shiki, Onda, and Delta presses. Some label printers have as many as 10 presses running in the same establishment.

The packaging sector

Where does the label industry figure in the packaging and printing industry as a whole? Unlike earlier published estimates that put the label industry at 3 or 4 per cent of the entire packaging industry, our estimate is that the label industry (excluding cloth labels and tags) represents more than 7 per cent of the annual packaging turnover in the country. And our estimate for the packaging industry is also higher than any authoritative figure published so far. (Recently one outlandish figure claims that the Indian packaging industry “is currently worth Rs. 65,000 crores.” If this were true it would constitute 2.7 per cent of the current GDP but this is a figure to aim for and there is no evidence to support it.) Our preliminary figures show that the packaging industry including board and paper, flexibles, rigid metal, glass, and plastics, corrugated and labels was a respectable .7% of the GDP in 2000-01.

The Indian economy

The Indian economy grew at rates between 7 per cent in 1995-96 gradually slowing down to 5.6 per cent in 1999-2000, and then slowed down further to around 2.8 per cent in 2000-01. In 2001-02 the economy rebounded to 4 per cent GDP growth, in 02-03 to 4.5 per cent and in the 03-04 financial year the government is predicting a yearly growth figure above 8 per cent based on the Q3 growth figure of 8.2 per cent and the Q4 figure of 10.4 per cent. The quarterly figures are buoyed by strong growth rates in agriculture (16.9 per cent) and services (9 per cent) but the industrial growth rate has only been 6.5 per cent. Nevertheless, it is expected by even the most conservative professional rating agencies that GDP growth for 03-04 will end up somewhere in the region between 6.9 and 7.2 per cent. (The Reserve Bank of India says over 7 per cent; NCAER says 7.3 per cent; Crisil 7.1 per cent; and ICRA 6.9 per cent.)

What is important to remember is that the rate of investment in the Indian economy has been above 24.6 per cent over the last nine years and with an average of 26.04 per cent over the last five years. The investment index needs to be four times the GDP to achieve 10 per cent growth, that is, the investment in the economy needs to jump to 40 per cent, highly unlikely in the current year.

The IppStar survey

The IppStar industry survey is a syndicated survey of the entire industry with main sponsors including ATE, Kodak Polychrome Graphics, Heidelberg India, Manugraph, and Label Expositions. Associate sponsors are IPAMA in India and NPES of the United States. We are surveying the entire industry including periodical and book printing, commercial printing, security printing, signage, digital printing and packaging and converting. The survey looks at the production and consumption of equipment, consumables, software, services, and at all processors and end user segments with over 2000 interviews.

In the packaging and label industry we are looking at pharmaceuticals, personal care, cosmetics, household, and alcoholic beverages (IMFL and beer), carbonated soft drinks, milk products, juice, water, and processed foods. We are also looking at lubricants and oils, industrial packaging, security and computer labels, garment and sari labels and tags and agricultural packaging and labels including those for pesticides.

We are looking at all the materials and technologies that are used in the packaging and labels sector. These include paper, flexibles, thermal transfer, rigid metal, glass, and plastic, corrugated, caps and closures and at all the processes including gravure, flexo, offset, hybrid, screen and digital inkjet and other digital label presses. Suppliers, converters, and end users of packaging and labels all over the country have been extremely cooperative so far. For further information and criticism please email naresh@ippmail.com .

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